Setting up a trading company in Hainan Island, China

A FICE refers to a foreign-invested enterprise (FIE) that engages in the following activities: Retailing i.e. selling goods from fixed venues or via television, telephone, mail order, internet, and vending machines, and related services. Wholesaling i.e. selling goods to retailers and industrial, commercial or other customers and other wholesalers, and related services. Franchising i.e. authorizing the use of trademarks, trade names and operation models for remuneration or franchise fees through conclusion of contracts. Commission agency activities i.e. acting as sales agent, broker or auctioneer for goods, or as wholesaler charging fees and conducting sales for others’ goods and related services on a contractual basis. There are two main types of FICE: retail FICE and wholesale FICE. Retail FICE can, upon permission, engage in: Retail of goods; Import of goods dealt in by the FICE itself; Purchase of domestic products for export; and Other relevant ancillary business. Wholesale FICE can engage in: Wholesale of goods; Commission agency (except auctioning); Import and export of goods; and Other relevant ancillary business. A FICE can authorize others to open stores by way of franchising Basic Set-up Requirements The foreign investor should meet the following criteria: Has a good reputation Has not committed any acts in violation of Chinese laws, administrative rules or regulations Can meet the required ratio between registered capital and total investment What is the Registered Capital? The Registered Capital of the Company is a certain amount of cash or substances evaluated to certain amount of money the Shareholder of the Company promises to invest into the Company. According to the Regulations, the minimum Registered Capital for a foreign-invested company should comply with the requirement of the Chinese Company Law, which provides that the Registered Capital for a wholesale company should be at least RMB 500, 000, and for a retail company should be at least RMB 300, 000. The competent authority may require a higher amount of Registered Capital according to different situations. For example, if the Company applies for trading automobile, the Registered Capital required will be higher. The shareholder does not have to contribute the Registered Capital all at once. After the Company is registered, 20% of the Registered Capital needs to be paid in within 90 days after the Business License is issued and the rest can be paid in within 2 years. Limitations Limitations apply to FICEs dealing in specific products such as books, periodicals, newspapers, pharmaceutical products, agricultural chemicals, agricultural films, chemical fertilizers, processed oil, grains, vegetable oil, edible sugar and cotton. If a foreign investor has more than 30 retail stores in China and distributes these products from different brands or suppliers, the foreign investor’s share in a retail enterprise is limited to 49 percent. Retailing Where the foreign investor wishes to apply to open a shop concurrently with the establishment of the FICE, the proposed shop must conform to the urban and commercial development plans of the city where it is situated, and a document issued by the local government evidencing the same will be required. In addition, for stores with business areas of or above 3,000 square meters, the foreign investor will be required to submit a photocopy of the certification document for the right to use the land, and/or the premises lease agreement for the store. Where a FICE that has already received permission to be established applies to open a shop, then in addition to meeting the above requirements, it must also have undergone annual inspection on time and passed, and have paid up all of its registered capital. The land to be used by a FICE for opening a store must be commercial land obtained by means such as public invitation for bids, auction, and listing in accordance with the laws and administrative regulations relating to land administration. Franchising For foreign investors who would like to engage in franchising, they must also comply with the Administrative Regulations on Commercial Franchise adopted by the State Council in 2007. Term of Operation The term of operation of a FICE should generally not exceed 30 years, whereas a FICE set up in the central and western regions should generally not exceed 40 years. Business Scope Expansion Where an existing FIE wishes to engage in the commercial sector, it should amend its joint venture (JV) contract (applicable to JVs) and articles of association, fill out the relevant application forms, and submit them in accordance with the legal procedures for expanding an enterprise’s business scope. The specific method of distribution (i.e., wholesale, retail or commission agency) should be specified, and the list of the relevant products should be attached. Application Documents The application documents for establishing a FICE are as follows: Written application form Feasibility study report jointly signed by all investors Contract, articles of association, and annexes thereto Each investor’s bank credit certification, registration certification (photocopy), and legal representative certification Identity certificate if the investor is an individual Each investor’s audit report in the most recent year audited by an accounting firm Evaluation report for state-owned assets to be invested by the Chinese investor into a Sino-foreign equity/cooperative JV commercial enterprise Catalog of import and/or export commodities of the FICE List of members of the board of directors of the FICE and the respective appointment letters from each investor Enterprise name pre-approval notice enterprise issued by the administrative department for industry and commerce For stores the size of 3000 square meters or above, land use right certification document (photocopy), and/or lease agreement for the store to be set up (photocopy) Document issued by the in-charge commerce department stating that the store is in compliance with the relevant provisions concerning urban development and urban commercial development Where documents are not signed by the legal representative, a power of attorney must be presented.

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